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WHATS ON THE HORIZON? Real Estate Investment
for UK Pension Funds Presentation by Prof. Paul
McNamara Head of Research, PRUPIM
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The Survey Main Questions

• Why Real Estate?
• Attitudes and Approaches to Real Estate, Domestic
  and Overseas
• What makes a successful Real Estate Manager?
• Looking to the future with Real Estate

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The Sample

• PMI members were surveyed in June and July 2008
• Over 200 responses from pension funds,
  consultants and service providers
• Pension fund responses were split evenly by size
• Predominately private sector schemes
• Over 70 respondents were DB schemes

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Why Real Estate?

• Other Findings
• A mainstream asset for larger funds an
  alternative for smaller funds
• Larger funds tend to have bigger allocations
• Majority want market plus returns one in
  twelve had absolute targets
• Most looking around 8 nominal returns

Scoring regime first ranking score 3 points,
second ranking score 2 points and third 1 point
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What is your preferred investment style when
investing into
UK Real Estate
Overseas Real Estate
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What are the most important characteristics of a
successful real estate manager?
Pension Fund and Trustees
Investment Consultants
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Comments Received
Main Themes
The key issue will be liquidity and whether an
exit can be achieved at a reasonable cost.
Some funds have been caught out in the UK over
the past 12 months they need to improve their
speed of decision as real estate markets are
moving quicker.
The key issue will be liquidity and whether an
exit can be achieved at a reasonable cost.
Some funds have been caught out in the UK over
the past 12 months they need to improve their
speed of decision as real estate markets are
moving quicker.
Speed of recent market retrenchment has surpassed
pension funds expectations but not affected
their commitment to property -required returns
stable -allocations stable or marginally
increasing -potential opportunities following
re-pricings Illiquidity and opacity are still
the main barriers for non-investors International
Real Estate seen to be useful as -a further
diversifier -a source of enhanced returns 50
of pension funds investing in property now invest
overseas.

• We expect to increase direct exposure overseas
  through property unit trusts for
  diversification.

• We expect to increase direct exposure overseas
  through property unit trusts for
  diversification.

We are significantly increasing our allocation
to property, subject to identifying good
managers. We think now is a relatively good time
to do this, but we will be sensitive to markets.
We are significantly increasing our allocation
to property, subject to identifying good
managers. We think now is a relatively good time
to do this, but we will be sensitive to markets.
It is rapidly becoming a recognised global asset
class.
It is rapidly becoming a recognised global asset
class.
We have just finished building our UK portfolio.
We will review this at some time, but are
unlikely to invest overseas in the next three
years.
We have just finished building our UK portfolio.
We will review this at some time, but are
unlikely to invest overseas in the next three
years.
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What long term nominal investment returns do you
require from real estate exposure?
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How will your overall allocation to real estate
change over the next three years?
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Key Findings

• Pension funds commitment to property undimmed
• Diversification still No.1 reason for investing
  in real estate
• UK property is core, overseas seeking value
  added
• Overseas exposure Europe is No.1 choice 50
  now investing overseas
• Investment process and operational risk
  controls funds and consultants agree
• 50 stable but 25 actually increasing Real
  Estate exposure in the years ahead

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WHATS ON THE HORIZON? Questions?
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WHATS ON THE HORIZON? Copies of the full report
available at www.prupim.com/whatsonthehorizon
PRUPIM forms part of the MG Group of companies.
PRUPIM is an indirect subsidiary of Prudential
plc, a company incorporated and with its
corporate head office in the United Kingdom.
Prudential plc and its affiliated companies
constitute one of the world's leading financial
services groups and is not affiliated in any
manner with Prudential Financial, Inc, a company
whose principal place of business is in the
United States of America.
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